How BOC’s Costs Create Opportunities for Check Processors

From (Digital Transactions - May 8, 2007) .

The back-office conversion e-check code has been live for nearly two months now, and, as many predicted with its March 16 debut, it came in like a lamb. There have been few, if any, high-profile product launches or other splashy events associated with the new automated clearing house payment option. But that doesn’t mean there isn’t activity going on behind the scenes. Banks and processors are ramping up a host of new payment services that offer BOC and check imaging. One of those is Plymouth, Minn.-based Solutran Inc., a specialty check processor that is preparing to roll out an outsourced BOC product called SPIN, for Solutran’s Point-of-Sale and Imaging Network. Michelle E. Kocur, manager of product development, tells Digital Transactions News that a “top” retailer that she won’t name yet started a 60-day test of SPIN on Sunday, and more SPIN clients are in the pipeline. “There’s a lot of great momentum,” she says. Under rules set by ACH governing body NACHA—The Electronic Payments Association, BOC lets retailers scan checks in their back offices to capture magnetic ink character recognition (MICR) line data and submit the resulting files for settlement as ACH debits. The code gives retailers an e-check alternative to NACHA’s older point-of-purchase, or POP, code. While leading retailer Wal-Mart Stores Inc. is a POP fan (Digital Transactions News, April 17), many stores haven’t adopted POP because of its consumer-notification and staff-training issues and the perceived need to equip every lane with scanners. Press reports portrayed BOC during its long incubation period as a simpler, less expensive alternative to POP, but that’s not always true, according to Kocur. A national retailer with hundreds or thousands of stores could still spend millions of dollars equipping each store with back-office scanning/imaging gear costing $1,500, along with $500 for needed software. Plus, because of possible returns, many retailers feel the need to store paper checks for a short period even though the rules don’t require them to, thus creating security issues and the need to either get a shredder or hire a shredding service, Kocur notes. Straight BOC “was a hard business case to make to them,” she says. Solutran’s resulting solution was for retailers to outsource the whole operation to it through SPIN. Since the large retailers the processor works with all scan their checks for verification and guarantee purposes, the MICR information can be uploaded daily to Solutran for ACH submission. The paper checks would be shipped to a Solutran facility for imaging and destruction, with ACH-ineligible items matched with the appropriate MICR data and cleared under the Check Clearing Act for the 21st Century (Check 21) through image-exchange networks. Solutran also would handle the digital archiving of images and the destruction of paper checks. Solutran clients using SPIN would still have some direct costs with BOC, including posting signs and printing receipts informing customers about the e-check option. But the idea of outsourcing is falling on receptive ears, even though larger retailers have to go through lengthy approval processes to change their current payment systems, according to Kocur. “There’s a lot of interest, absolutely a lot of interest,” she says.